Bank shares are up one place in Europe — Britain — after the Independent Commission on Banking report came in softer than expected. The ICB report will cost $9.5 billion annually for UK banks and force banks to ringfence off core operations from the rest of their business.
Lloyd’s, RBS and Barclays shares declined after the report was published this morning; however, within an hour they were trading higher.
Ian Gordon of Evolution Securities says the report could have been much worse (via FT Alphaville):
Today’s ICB report is unwelcome and unhelpful, but it could easily have been a whole lot worse. A (recommended) “delay” in implementation until 2019 should cause materially less transitional damage than might otherwise have been the case.
Accepting the fact that the report was only ever going to represent bad news, there is cause for not immaterial relief this morning. Most importantly, the ICB recommends a final mandatory implantation date of 2019. With a nod to political sensitivities, there is a call for an immediate commencement of implementation work, but, if accepted, the additional breathing space will certainly avoid any lingering fears of a requirement for fresh equity issuance, and most importantly, allows banks some planning time to mitigate the likely adverse impact of segmentation on funding costs.
This is particularly true given the apparent scope for the banks themselves to partially determine what falls inside or outside the retail “firewall”. Retail banking and SME business falls inside, so-called “casino” banking falls outside, but (for example) the provision of many services to large corporates may be placed on either side of the firewall.
Here’s the report:
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